California State Taxes Are Among the Highest in the Nation

A Guide to California State Taxes

According to the Tax Foundation, a non-partisan, non-profit research group in Washington D.C., California state taxes are among the highest in the country. This probably doesn't come as a surprise to those who live there or do business there, but if you're thinking about relocating to the area, you might want to keep these tax rates in mind. Here's how California state taxes will affect you if you’re buying a home, making money, or even just shopping in the Golden State.

California Sales Tax

The state-level sales tax rate is the highest in the nation at 7.25 percent as of 2017. This is actually a decrease from what it once was—7.5 percent until Proposition 30 expired. Combined with local sales taxes, the rate can reach as high as 10 percent in some California cities.

Other California State Excise Taxes

Like most states, California also taxes cigarettes and gasoline. A pack of cigarettes will cost you an extra $2.87 cents here. The tax used to be just 87 cents, but legislation ramped it up by an additional $2 on April 1, 2017. A little nicotine withdrawal might be easier to deal with in comparison.

Gas runs an additional 27.8 cents a gallon, which includes a base excise tax of 18 cents and an additional "price-based" tax of 9.7 cents. The base tax is slated to increase to 30 cents a gallon from November 1, 2017 through July 1, 2019.

You'll even pay an extra 33 percent if you buy fruit from a vending machine.

California Property Tax

The state's property taxes actually aren't all that bad. The effective rate is .81 percent as of 2017. Compare that to the 1.1 percent national average. Property in California is assessed at 100 percent of its full cash or fair market value, but you might catch a few property tax breaks provided for under California law:

The maximum tax on real estate is limited to 1 percent of its full cash value under Proposition 13. Taxes cannot increase more than 2 percent over the previous year.

Homeowners who live in their homes as their principal residences qualify for a $7,000 reduction in the taxable value of their property under the state's homestead program.

Senior citizens, the blind and the disabled can postpone their property taxes for their principal places of residence under the property tax postponement program that began on September 1, 2016.

Unfortunately, the state's homeowner and rental assistance program, which effectively reimbursed qualified taxpayers for a portion of property taxes paid on their homes or as part of their rental payments, has been discontinued.

California State Income Tax

The state also has some of the highest income tax rates in the country. California has nine personal income tax rates ranging from 1 percent to 13.3 percent. They're levied on both residents’ incomes and income earned in the state by non-residents. Although many states have reciprocity agreements with others that allow non-residents to work there without paying income tax anywhere other than their home state, California isn't one of them.

The highest rate of 12.3 percent begins at income levels of $526,444 or more as of 2017, and an extra 1-percent surcharge is tacked on to incomes of over $1 million. The lowest 1-percent rate is reserved for earners of $7,850 or less in taxable income.

Many of your federal deductions may be limited or disallowed in California, but other state tax credits are available, including an exemption credit for yourself and your dependents, a credit for renters, a credit for single or divorced parents, and a credit for people who have dependent parents.

Capital Gains Tax in California

California tax law includes no special provisions for capital gains tax. Unlike federal tax law, the state doesn't give you a break for long-term gains on assets you hold onto for over a year. If you sell any property or asset for more than your tax basis or investment in it, you'll pay taxes on your profits at your personal income tax rate regardless of the duration of ownership. This means that if you fall into that 13.3 percent tax bracket, you'll pay that rate on your capital gains, too.

If your sale is such that you must also pay the federal long term capital gains tax rate of 20 percent, you'll end up paying the second-highest capital gains tax rate in the world—a combined 33.3 percent.

California Inheritance and Estate Taxes

This is one area in which California residents really do get a tax break. When federal estate tax laws changed on January 1, 2005, the legislation eliminated California's estate tax, and the state has no inheritance tax. You can die here tax-free.